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Old 02.07.2012, 18:54
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property in UK - Tax advantage or not

Hello
We have a place in the UK still which has a mortgage on it and is currently rented out. I am trying to work out if that is an advantage for swiss tax or not. Do we get tax relief on the interest we pay on the mortgage or are we paying more due to the value of the property. I am trying to work out if it is worth putting extra money in, to try and pay the mortgage of early or would it be better in terms of tax to keep the mortgage going. I am all in a muddle with this and would appreciate any advice.
Thanks
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Old 02.07.2012, 19:01
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Re: property in UK - Tax advantage or not

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Hello
We have a place in the UK still which has a mortgage on it and is currently rented out. I am trying to work out if that is an advantage for swiss tax or not. Do we get tax relief on the interest we pay on the mortgage or are we paying more due to the value of the property. I am trying to work out if it is worth putting extra money in, to try and pay the mortgage of early or would it be better in terms of tax to keep the mortgage going. I am all in a muddle with this and would appreciate any advice.
Thanks
As taxation rates in CH are low, spending 100% to save 5-15% seems like a really bad deal. I would rather hang onto 85-95% of my money rather than save the 5-15% of tax.

If your tax rates is 50% or more it's more attractive.

If your renting the property out, you should be claiming the interest as an expence & reducing your UK tax liability.
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Old 02.07.2012, 19:48
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Re: property in UK - Tax advantage or not

If you own a property in the UK, you may be liable to UK tax on your Swiss income!
Reccommend you get advice soon. http://www.hmrc.gov.uk/cnr/faqs_general.htm#2nr
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Old 02.07.2012, 19:58
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Re: property in UK - Tax advantage or not

We have not had to fill in a tax form for several years now. I think the income we get from leasing the property out is not enough to require us to do this.
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Old 02.07.2012, 20:13
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Re: property in UK - Tax advantage or not

I assume that your UK tax situation is quite simple - i.e. the property rental income, reduced by interest and other allowable expenses may be less than your personal allowance, in which case no UK tax would be due.

Although this uk rental income doesn't get taxed in Switzerland, my understanding is that is considered when putting you in a tax bracket.

Therefore, as reducing the mortgage could reduce the interest paid, this could push you up into a slightly higher Swiss tax bracket. However, this really just means that the mortgage overpayment is not as "tax free" an investment as it may first appear.

As FMF says, it really depends what your Swiss marginal tax rate is to see if it is worthwhile.
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Old 02.07.2012, 20:15
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Re: property in UK - Tax advantage or not

UK rental income IS TAXABLE in Switzerland, if you resident here.

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I assume that your UK tax situation is quite simple - i.e. the property rental income, reduced by interest and other allowable expenses may be less than your personal allowance, in which case no UK tax would be due.

Although this uk rental income doesn't get taxed in Switzerland, my understanding is that is considered when putting you in a tax bracket.

Therefore, as reducing the mortgage could reduce the interest paid, this could push you up into a slightly higher Swiss tax bracket. However, this really just means that the mortgage overpayment is not as "tax free" an investment as it may first appear.

As FMF says, it really depends what your Swiss marginal tax rate is to see if it is worthwhile.
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Old 02.07.2012, 22:09
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Re: property in UK - Tax advantage or not

No we are not in a high tax bracket. so what i can make out is that would be worth us to stop over paying on the mortgage and just pay regular payments and use any spare cash to invest in pensions etc which would then be tax deductible. Sorry if i am being a bit slow. Finance is not my thing at all and i struggle to get my head around it. thanks - it has helped me realise i need to change my approach to this.
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Old 02.07.2012, 22:21
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Re: property in UK - Tax advantage or not

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No we are not in a high tax bracket. so what i can make out is that would be worth us to stop over paying on the mortgage and just pay regular payments and use any spare cash to invest in pensions etc which would then be tax deductible. Sorry if i am being a bit slow. Finance is not my thing at all and i struggle to get my head around it. thanks - it has helped me realise i need to change my approach to this.
Be very careful with any 'pension' investment, I think expenses genererally outweigh benefits unless you are a very high tax payer.
Pensions are sold as being tax deductable, however generally the income is taxable so the tax is deferred rather avoided.
My belief is by paying ZERO interest on loans, you are likely to end up richer, gearing if the market is low is interesting, however house prices in most places are a VERY long way from having any 'value' based on multiple of earnings.

Of course Phil will come in & say whilst money is almost free you should borrow, Phil has not experianced 16% mortgage rates, I have!
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Old 02.07.2012, 22:23
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Re: property in UK - Tax advantage or not

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UK rental income IS TAXABLE in Switzerland, if you resident here.
No itīs not...only income earned in Switzerland (for individuals and households...different for entities!) is liable for Swiss tax. That said your worldwide wealth is taxable (wealth tax) and your total assets less liabilities (e.g. mortgage) in combination with your income are used to determine your final tax rate. Of course this is only useful for individuals / households who are eligible to file a tax return. Note that if you earn rental income you need to register as an "Overseas Landlord" or something like that in which case you will need to complete a UK tax return for the UK rental income
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Old 02.07.2012, 22:26
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Re: property in UK - Tax advantage or not

My advice is to do both if possible: invest in a 3rd pillar for the nice tax break (CHF6682 max per year and per working adult) and pay off some of your mortgage if you can afford to.

In this way you reduce your tax bill and your mortgage interests. At retirement you would enjoy pension and income from your UK property (taxed in Switzerland, probably less than in the UK).
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Old 02.07.2012, 22:28
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Re: property in UK - Tax advantage or not

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No itīs not...only income earned in Switzerland (for individuals and households...different for entities!) is liable for Swiss tax. That said your worldwide wealth is taxable (wealth tax) and your total assets less liabilities (e.g. mortgage) in combination with your income are used to determine your final tax rate. Of course this is only useful for individuals / households who are eligible to file a tax return. Note that if you earn rental income you need to register as an "Overseas Landlord" or something like that in which case you will need to complete a UK tax return for the UK rental income
If you live in CH youe worldwide income is subject to CH taxation. In some cases your UK lax liability will exceed your CH liability for example due to UK personal allowance of about Ģ10K however it's NOT TAX FREE in CH. If the income is below the UK tax level there WILL be a CH liability.
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Old 10.07.2012, 14:09
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Re: property in UK - Tax advantage or not

My biggest concern for the OP would be the question of domicile... very difficult to persuade HMRC that you are no longer domiciled in the UK if you retain a UK property... which could have consequences in particular for inheritance.
Rick
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Old 10.07.2012, 15:40
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Re: property in UK - Tax advantage or not

But the tax man in the UK has told us we do not need to fill in a UK tax form any more (we did for the first 5 years of living in Switzerland). If we were to sell the house - where would we be taxed on the capital gains- UK or Switzerland - or both???

@ pofg What does OP mean??
Thanks
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Old 10.07.2012, 16:01
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Re: property in UK - Tax advantage or not

OP = Original Poster... apologies for slang.

Tax on fixed assets tends to be payable where that asset is located, so the capital gains would be payable in the UK I'd assume... how this works if it was your main residence I don't know... you will need to take advice.

NOT filling in a tax return does not mean you've successfully moved your domicile. In fact, as I understand it (and I am by no means an expert), if you still have property in the UK the tax man will argue you have retained your link and intend to return there one day. Hence domicile = UK and hence your estate will be subject to UK inheritance tax.

Famous example of guy who sold large industrial concern and moved to Monaco. No assets or business in the UK for 20yrs, but the Inland Revenue took his estate to court for the inheritance tax because?? He'd retained his membership at Lords.
Therefore they considered his heart was still in the UK. Therefore domiciled in the UK, therefore very large inheritance tax bill that he'd spent 20yrs in Monaco to try and avoid. The IR won the case.

Domicile is very difficult to change. And basically impossible while you retain UK property as I understand it.

Note I am NOT a tax adviser, but I have been through all of the above myself and taken lots of professional advice along the way. So I hope helpful.
Regards
Rick
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Old 10.07.2012, 16:52
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Re: property in UK - Tax advantage or not

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UK rental income IS TAXABLE in Switzerland, if you resident here.
No itīs not...only income earned in Switzerland (for individuals and households...different for entities!) is liable for Swiss tax. That said your worldwide wealth is taxable (wealth tax) and your total assets less liabilities (e.g. mortgage) in combination with your income are used to determine your final tax rate. Of course this is only useful for individuals / households who are eligible to file a tax return. Note that if you earn rental income you need to register as an "Overseas Landlord" or something like that in which case you will need to complete a UK tax return for the UK rental income
Yes it is. You are splitting hairs. Rental income is taxable. Maybe not under income tax, but it sure as hell falls under assets and general wealth.

As an overseas landlord, you are exempt from paying taxes, so you don't have to fill in a tax form, especially if you are declaring it in CH.
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Old 10.07.2012, 17:14
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Re: property in UK - Tax advantage or not

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UK rental income IS TAXABLE in Switzerland, if you resident here.
Not directly true. It should be declared and affects your tax rate but is not taxed. However your mortgage interest is apportioned according to your total assets and debts.

On the flip side if its a jointly owned property, it is your only UK income, and you can claim personal allowances you have about 10kgbp tax free net of cost rental income.

Im already in the flat (not progressive) tax bands, so the rate boost is very marginal. As another poster said you need to do the maths for your situation.
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Old 10.07.2012, 17:17
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Re: property in UK - Tax advantage or not

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Tax on fixed assets tends to be payable where that asset is located, so the capital gains would be payable in the UK I'd assume... how this works if it was your main residence I don't know... you will need to take advice.
For principal private residences since these are CGT exempt in the UK so the gain is tax free, and of course private capital gains are tax free in CH too.

A property can remain your PPR even if you dont live there due to work abroad, but the rules are fiddly. If you intend to return to the UK after a long period of absence check carefully, it might make sense to sell well before returning to avoid (Oops that's a dirty word nowdays, sorry) tax.
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Old 10.07.2012, 17:24
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Re: property in UK - Tax advantage or not

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No itīs not...only income earned in Switzerland (for individuals and households...different for entities!) is liable for Swiss tax. That said your worldwide wealth is taxable (wealth tax) and your total assets less liabilities (e.g. mortgage) in combination with your income are used to determine your final tax rate. Of course this is only useful for individuals / households who are eligible to file a tax return. Note that if you earn rental income you need to register as an "Overseas Landlord" or something like that in which case you will need to complete a UK tax return for the UK rental income
To be precise, you are not directly taxed in Switzerland on "real property" ie land and buildings overseas, other than their impact on your tax rate for both income and wealth tax purposes.

Investment income eg dividends and interest are taxable wherever it arises. So for example, while many Swiss marketed funds are based in Luxembourg it is to avoid withholding tax, rather than avoid the tax itself. Sadly :-)
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Old 10.07.2012, 17:31
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Re: property in UK - Tax advantage or not

I meant "Was" as in "used to be" your principle residence... but still helpful post Danny, thanks.
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Old 10.07.2012, 17:32
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Re: property in UK - Tax advantage or not

We have a similar situation. House in the UK in joint names. Rented out so the income falls well below the personal tax allowance. We declare the property here in CH but I don't think it affects our liability here too much. We don't intend to return to the UK, but with the housing market, no point trying to sell it. We complete a non resident return for HMRC so we are exempt from charges levied by our letting agent etc. We do this every time the tenant changes and we speak with HMRC to check the status hasn't changed and we don't need to do a return.

We will take further advice when we come to sell.

oh, and look to change your mortgage to an offshore one. Isle of man, HK etc
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